The present invention relates generally to inventory management and supply-side planning, and in particular, to a system and method for balancing inventory during product transitions.
Product transitions are a challenge for supply chain managers as the adoption rates for new technology are difficult to predict and established processes for sourcing components may break down towards end of the product lifecycle. As a result, managers who underestimate the transition speed may be left with unusable inventory of a legacy product, whereas managers who scale down product too quickly may find they are unable to source for their demand or are otherwise subject to excessive costs for procurement.
From an operations perspective, past approaches do not take advantage of 1) the potential to personalize transition strategies by customer, based on that customer's preferences and tendencies towards fast adoption; and 2) the ability to implement demand-side actions, with a lead-time shorter than that of supply actions. The difficulty of last time-buys is well-known, and newsvendor-type models have been used to optimize this decision in the face of an uncertain adoption rate. However, inventory planning tools view this as a one-shot decision, and the length of supply lead times mean that there is great uncertainty in the decision-making and consequently poor results.
Furthermore, the decision is made on a single dimension what quantity to buy rather than taking a more granular view that involves rationing of supply to select customers and strategic use of substitutions/pricing to divert demand when necessary.
There are also prior art systems that are aimed solely at the demand-side, with the goal of leading customers to a product similar to one that has become obsolete. Such tools, while relevant, do not contain any aids for operational decision-making, nor can they be readily integrated into supply planning tools.
Further, from an operational perspective, it is not always the most similar product that is best to recommend, and furthermore the decision of whether/when to transition the customer may be made strategically.